SHOWS: HONG KONG, CHINA (JANUARY 23, 2014) (REUTERS - ACCESS ALL)

BINAY CHANDGOTHIA, PORTFOLIO MANAGER, PRINCIPAL GLOBAL INVESTORS

1. (QUESTION GRAPHIC)

'Will developing markets do well this year?'

2. BINAY CHANDGOTHIA SAYING:

'My sense is the second half would be much better for developing markets as compared to developed markets, partly on three counts. One, as I said earlier, emerging markets could be closer to the end of their monetary tightening cycle by the second half of this year which really is a positive backdrop. Developed markets growth is likely to pick up in the first two quarters of this year, which implies that the export data if it comes through, will support emerging market growth. The third is you're seeing adjustments on the emerging markets side and the bottom upside as well with companies not expanding as aggressively as they were, realizing the new normal for growth. And all three combinations given the fact that the currencies in the EM world have also weakened. Like going into last year, 2013, the currencies were looking fairly old-valued when you look at the real exchange rate for most of the emerging markets. They have connected quite a fair bit, so that should provide an additional tailwind into emerging markets. So my sense is you could see a reversal of some of these flows into the second half of this year towards emerging if it gets cheaper.'

3. (QUESTION GRAPHIC)

'What are your views on China's latest HSBC flash PMI numbers?'

4. BINAY CHANDGOTHIA SAYING:

'Well China is clearly pursuing two objectives. One is that they are following a much tighter monetary policy regime than a lot of other markets in the world because they have this big problem about too much of debt being accumulated there. So Chinese market condition is going to remain fairly tight according to us. The implication for that is that domestic demand condition in China will soften, will remain soften. They are also kind of on this path to fighting corruption, to kind of curtailing excess spending by the government officials. And that also leads to a situation where domestic demand is going to remain a little weak. So clearly the Chinese growth [inaudible], to my mind is going to go down. To what extents it goes down, from about seven and a half percent, we think that it probably goes under seven quarters, seven not below that. That should still provide a robust enough growth outlook for economies that are directly related to China in terms of supplying goods into China. India is largely an importer from China, so maybe domestic growth going down in China, inflation coming off in China might actually help India because the import cost of, the cost of imports into India will come down a bit. But I mean India's cycle again, by and large, given the fact that it's essentially a domestic-oriented economy will depend more on domestic factors than what happens in China.'

5. (QUESTION GRAPHIC)

'Last November you were neutral on India. Has your stance changed since?'

6. BINAY CHANDGOTHIA SAYING:

'Well I would think the stance is still the same for India. Last time the reason why we were not kind of underweight was because the valuation looked fairly cheap. At this stage valuations have run up and there is this big election-oriented uncertainty, which is kind of looking at us. So my sense is, as things get clearer after the elections in terms of the policy statement of the new government, in terms of the interactions between the various aspects of government policy, we'd probably look at a positive stance. The good thing though between last time and this time is that at the bottom level, you are seeing some traction in terms of better earnings feasibility, probably in a situation where the margin contraction, which is evidenced for four to five quarters in a row, it's kind of ebbing now and probably see a little bit of margin expansions as well. So still neutral but waiting for the right time I guess, to increase allocations.'